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Answer: 0.32%
The portfolio manager's asset allocation contribution is computed by summing the differences between the portfolio and benchmark weights of each asset class multiplied by the benchmark performance of that asset class. For equity, the difference in weights is 8% (58% - 50%), and for fixed income, it is -8% (42% - 50%). Multiplying these differences by the benchmark returns for each asset class gives us the contribution from asset allocation: Equity contribution: (8% * 11%) = 0.88% Fixed Income contribution: (-8% * 7%) = -0.56% Adding these contributions together results in the total asset allocation contribution: Total asset allocation contribution: 0.88% - 0.56% = 0.32% This calculation shows that the asset allocation decision contributed 0.32% to the portfolio's overall excess return, which is why option D is the correct answer.
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| Asset Class | Portfolio Weight | Benchmark Weight | Portfolio Return | Benchmark Return |
|---|---|---|---|---|
| Equity | 58% | 50% | 8% | 11% |
| Fixed Income | 42% | 50% | 6% | 7% |
What is the contribution of the portfolio manager's asset allocation decisions to the portfolio's overall excess return?
A
-2.16%
B
-1.84%
C
-0.16%
D
0.32%
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